Coles Share Price ‘Down Down’

Supermarket wars are getting interesting. And Coles is the latest one losing the battle.

Their liquor and food sales growth has slowed to the lowest level since 2009, the Australian Financial Review reports. But they are ‘ready to do whatever it takes to protect its share of the $90 billion grocery market.’

Coles is outperforming Woolworths [ASX:WOW] in same store food sales, and it continues to gain market share. Yet Wesfarmers [ASX:WES] shares have taken a beating, following the announcement of weaker sales growth, as you can see in the chart below.

Source: ASX

Yet food and liquor sales are not the only culprits. The big Masters selloff is also affecting Bunnings, owned by Wesfarmers. Masters, part of the Woolworths group, is having a $500 million liquidation sale to get rid of the stock before closing down. It slashed prices by up to 60%, which has caused a slowdown in sales for Bunnings.

The fact is, Coles’ momentum is slowing, and Woolworths is now stepping up their game.

To recover from last year’s $1.2 billion loss, Woolies has lowered prices and introduced ‘phantom brand’ products. That is, brands that look like national brands but are supermarket private labels in disguise.

Up to June, Woolies stocked private labels ‘Select’ and ‘Homebrand’. These were easily identifiable, as they had the Woolies logo clearly marked. Yet it scrapped them after a decline in margins. The reason: Aldi’s private label. According to the Sydney Morning Herald, Aldi’s private label was 27% cheaper than Woolies’ Select brand.

New ‘phantom’ brands introduced by Woolies, like Hillview tasty cheese or Baxter’s pet food, have no clear Woolies branding. And with this attempt, Woolies is trying to replicate Aldi’s success in private branding.

Aldi has been using this strategy for a while. ‘Aldi packaging might look similar to mainstream brands but it doesn’t look obviously like private label,’ Hoyne Branding director Andrew Hoyne told the SMH.

You see, private labels are usually more about price than quality. And Aldi has mastered that game. Aldi’s private labels send a consistent message of value and quality at a lower price.

And Aldi is a step ahead in the game. Aldi uses the ‘special buys’ section to attract different demographic groups into the supermarket. And they can pretty much sell anything in this section.

It has recently partnered with Australian designer Collette Dinnigan to sell a line of children’s clothing. The announcement created frenzy among parents that queued outside the store, as they were selling at crazily affordable prices. In fact, they were so affordable that items are showing up on eBay priced higher than instore.

Aldi keeps setting the pace in the supermarket wars. Introducing phantom labels and lowering prices is a strategy directed against Aldi. Woolies and Coles keep trying to emulate the German discounter instead of creating their own strategy.

Selva Freigedo is an analyst with a background in financial economics. Born and raised in Argentina, she has also lived in Brazil, the US and Spain. She has seen economic troubles firsthand, from economic booms to collapses and the ravaging effects of hyperinflation, high unemployment, deposit freezes and debt default.
Selva now writes from her vantage point here in Australia. She is lead Editor at the daily e-letter Markets & Money. And every week, she goes through each report and research note produced by our global network of trusted advisors to find the best investment opportunities for you in Australia and overseas. She packages these opportunities for you in Global Investor.

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